State and Local Tax Systems

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Main Idea

State and local governments each rely on different revenue sources.

Reading Strategy

Graphic Organizer As you read the section, complete a graphic organizer like the one below by describing why sales taxes are effective ways to raise revenue.

Key Terms intergovernmental revenue, property tax, tax assessor, payroll withholding statement


After studying this section, you will be able to:

1. Explain how state governments collect taxes and other revenues.

2. Differentiate between state and local revenue systems.

3. Interpret paycheck deductions.

Applying Economic Concepts

Sales Tax Read to find out why, when you purchase an item in most states, you pay a fee in the form of a sales tax.


Death Taxes Raise Ire

As opposition grows against the death tax, small business is emerging as the levy's leading adversary.

A decade of strong revenues and record surpluses already threatened federal and state death taxes, a meager government money source to begin with. Furthering the cause rs that 34 states don't tax inherited assets. . . .

The state tax landscape vanes greatly, * hnth levies on inheritance and estates. . . . Death tax


Will death taxes doom family-run businesses?

aren the tax.

"t fortunate enough to even be elrgrble

But for small businesses [there is] ^^^^^ being taxes prevent family-run enterprises from being passed down to heirs. . . .

State and local governments, like the federal government, raise revenue in many ways. They receive funds from sales taxes, property taxes, utility revenues, and through other methods. Sometimes, as we saw in the cover story, they even tax us when we die.

State Government Revenue Sources

|Vj|n State governments collect their revenues from £Jm' several sources. Figure 9.7 shows the relative proportions of each source, the largest of which are examined below.

Intergovernmental Revenues

The largest source of state revenue is the category called intergovernmental revenue—funds collected by one level of government that are distributed to another level of government for expenditures. States receive these funds from the federal government to help with expenditures on welfare, education, highways, health, and hospitals. As Figure 9.7 shows, they represent nearly one-quarter of all state revenues.

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Figure 9.7





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